An investor seeking a gateway to the vast African market, with a language that opens the door to Latin America, unique FDI incentives, world-class infrastructure and the safety net of EU legislation need look no farther than the Canary Islands.

The seven volcanic islands that make up this Spanish ‘autonomous community’, lying only 100 kilometres off the African coast, was until recently practically a one-sector economy: tourism. Each year the Canaries’ population of two million grows sixfold with the arrival of some 12 million foreign visitors seeking sun and sand. The trend is steadily shifting towards a more diversified economy, making use of other natural resources such as alternative energy potential and a workforce skilled in high-tech sectors.

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“The focus in our economic strategy has shifted from reactive to proactive,” says Javier Mariscal, chief executive of Proexca, the Canary Islands investment promotion agency. “Tourism remains the main driver of our economy but it is by no means the only one. We see our proximity to Africa as a strong incentive for investment, since geographically we are part of Africa, but politically, socially and in terms of legal guarantees, we are fully integrated in Europe.”

Growth potential

Mr Mariscal points to biotechnology and alternative energy as two sectors with a high growth potential, and explains geographical location is a major plus for the islands.

“Global trade and investment flows are shifting southward to countries such as Brazil, and the north needs a distribution centre, a role we can easily fulfil,” he says. “We have a unique advantage, because ports like Marseilles and Rotterdam don’t have the same access to these markets.”

DADT Export-Import is an example of a local company that has taken advantage of its proximity to Africa. “We provided one company with information on Senegal to help it increase its exports and find a support base to grow its operations,” says David Saavedra, director of AfricaInfoMarket.org, an internet venture based in Tenerife. “We helped it to find financing, support from the Spanish foreign trade institute ICEX and contacts with Spanish companies interested in the Senegalese market.” The company is now providing Senegal with products in the automotive, information technology and food sectors.

Six international airports and 10 commercial seaports make the Canaries an ideal logistics base. The port of Las Palmas, Spain’s main fuel station and bunkering facility, is Africa’s first container hub until you reach Durban, a true crossroads between continents, with shipping lines to more than 380 ports worldwide. The airport of Gran Canaria, with 10.5 million passengers a year, is located 15 minutes from the port, and Gran Canaria is setting up an airport logistics centre to focus mainly on west Africa.

Special zones

Investors can also take advantage of the Canaries’ Special Zones (ZEC) and their unique fiscal incentives.

“We offer the lowest corporate tax rate in Europe and companies wishing to set up in our special zones have their applications processed in one month,” says ZEC director José Cerezo. “We now have 564 member companies, of which about one third are foreign. Our aim is to achieve economic diversification for the Canary Islands.”

ZEC corporate tax is 4%, compared with the EU average of 30%. Companies that comply with certain undertakings are exempt from IGIC (General Indirect Tax of the Canary Islands), the equivalent to value-added tax, as well as transfer tax and stamp duty. There is no withholding tax at source on dividends, interest and royalties. The ZEC regime has attracted some €900m in investment in the past seven years.

The government would welcome investment in areas such as ancillary tourism services, information and communication technology (ICT), audio-visual, outsourcing, renewable energy and biotechnology. Several sectors, however, are not allowed, and these include financial services, hotels, construction, retail trade and healthcare.

As part of the strategic plan to attract high-tech investment, a science and technology park (PCTT) has been set up in Tenerife. Its objective is to encourage technology transfer and innovation processes in the business community. The facility’s specific advantages include the island’s marine and volcanic biological and geological research, desalination technology, astrophysics and astronomic research, environment and renewable energy, and ICT. The aim is to make PCTT a one-stop shop and local co-ordinator for R&D and innovation-related issues, as well as a contact point for local and foreign businesses interested in R&D and innovation in new technologies.

Astrophysics is a key area of development that has turned the Canaries into a major world astronomical observation centre. Few places in the world offer the conditions needed by modern observational astronomy. The summits of Tenerife and Las Palmas possess these exceptional conditions and host some of the world’s most advanced telescopes, which to a large extent were built with technology and equipment from foreign investors.

The 10.4 metre telescope of El Teide in Tenerife is a good example of this, in which Germany’s Schott supplied the blanks of the zerodur mirrors, SESO of France was in charge of polishing the mirrors, and mirror coatings were deposited by Sagem, also of France. Camera lenses blanks came from Japan’s Ohara, with some of the camera lenses manufactured by Fisba and coated by ZC&R, both of Switzerland. “It is illustrative to bear in mind that the graduates reading astrophysics theses in the Canaries are about 8% of those in the entire US,” says Campbell Warden, executive secretary of the Instituto de Astrofísica de Canarias.

Alternative energy

With regard to renewable energy opportunities, if there is one asset the Canary Islands has in abundance it is wind. “Our objective is to power this island on 100% renewable energy sources,” says Javier Morales, deputy president of the government of El Hierro, the westernmost of the Canaries. “We are currently working with three US universities on oceanography research and clean energy sources and we would welcome inquiries from foreign companies.”

The local authorities are building a wind-pumped hydro power station that can serve as a model for companies engaged in alternative energy research. “This is the ideal spot for R&D in any type of sustainable technology. El Hierro is a Unesco Biosphere Reserve with wind, water and solar assets that few places can match.” The project consists of five 2 megawatt (MW) wind turbines that will power a desalination plant. Water will be pumped uphill nearly 2000 feet to a 480,000-cubic-metre storage tank, which will flow downhill to power an electricity generator. The €54m project is set to begin operating in 2010.

The regional government’s emphasis on diversification and the incentives on offer were strong attractions for Atos Origin, an IT services provider. “We saw an opportunity to set up a near-shoring facility in the Canaries and consolidate our operations,” says José Manuel Rodríguez, director of managed operations.

“There are two world-class universities in the Canaries with 50,000 students, of which about a third are doing technology degrees. We went to these universities and found the human resources we needed, and then Proexca helped us with our training programmes,” he adds. “Some 80% of our staff speak English and they are providing solutions for major clients such as Telefónica, Philips and Allianz. The truth is that had we not found the highly qualified pool of people we required, this could not have happened.”

Audio-visual paradise

The audio-visual sector is another piece in the regional government’s economic diversification strategy. Vicente Mora, director of Atlantia Pictures, says the Canaries could become a world centre in this field. “We spent years looking for a financing alternative to Germany and the UK,” he says. “We found what we needed in the Canaries, with its extraordinary tax incentives and ZEC. This is a paradise for the audio-visual industry. It is possible to reproduce almost any place on the planet for outdoor shooting, and the islands have excellent hotels and infrastructure for our industry.”

The company is moving ahead with plans to film a re-make of Papillon, a $90m production with the collaboration of US producer Branko Lustig.

The cost of this report was underwritten by FEDER (European Union). Reporting and writing were carried out independently by fDi magazine.

COUNTRY PROFILE

CANARY ISLANDS

Population: 1.97 millionArea: 7447 sq km

Real GDP growth: 2.8%GDP per capita: $15,235

Largest sector Services (% of GDP): 78%

Source: Wikipedia, 2008